CoEfficient Serviceshttps://coefficientservices.com
Efficiency Adds UpMon, 10 Jul 2017 18:48:04 +0000en-UShourly1Customer Analysishttps://coefficientservices.com/resources/data-driven-management/customer-analysis/
https://coefficientservices.com/resources/data-driven-management/customer-analysis/#respondMon, 10 Jul 2017 18:48:04 +0000https://coefficientservices.com/?p=2017After taking her morning coffee to her desk, Jessica sat down at her computer to look at her monthly financial statements. How could her business be losing money again? She had some great customers. On the other hand, she remembered

]]>After taking her morning coffee to her desk, Jessica sat down at her computer to look at her monthly financial statements. How could her business be losing money again? She had some great customers. On the other hand, she remembered a call last night with Tim, a real problem customer. Tim was a drain on her time and resources and he didn’t even pay her very much. Yet she also remembered the update last week from Darin, one of her favorite customers that wasn’t very big right now but on the cusp of increasing his spend with Jessica’s firm. She puzzled that there must be a more data-driven approach to understanding her customers and how they affected her company’s financials.

In your own business have you ever felt like Jessica?

When trying to understand how your customers are performing, we’ve found the ABC Customer Classification framework to be very useful.

Graphic Source: Cleverism.com

A class customers represent the most valuable customers you have.

B class customers are the middle tier. Some of these may have great potential and just need to be upsold into class A. Others may be spending a lot of money with you but are not very profitable.

C class customers are those you are losing money on.

As you segment your customers, you will probably find the 80 / 20 rule (also known as the Pareto Principle) applies here. The 20% of customers in class A are likely responsible for 80% of your revenue or profit.

As you quickly realize, ABC Customer Classification requires critical thinking. How do you define A, B, C? Is it just profitability? Does revenue matter? What about small but profitable? What about big clients requiring a ton of work but limited margins?

The simple ABC classification is limited. Where do you draw the dividing line between customers? What corrective action do you take? Just identifying a B client gives you no insight into how to fix the problem.

Advanced ABC

To address these concerns, we’ve come up with a more robust ABC Customer Classification for account management. Take a look at this 2 x 2 matrix we created:

The X axis can be Revenue or Sales.

The Y axis can be Contribution Margin % or Profit Margin %.

Step 1 is to plot your customers in this matrix. As you will notice, this still ends up in an ABC classification system, only now you have 2 B categories (Yellow) plus A (Green) and C (Red) categories. The B’s have 2 paths to become A’s.

Step 2 is to create account management priorities based on this data.

Step 3 is to establish a strategic plan for customers at each priority level.
Your action items may vary depending on your circumstances but below are some general guidelines.

Customers in the upper right you want to keep and increase loyalty.
Customers in the upper left you will want to grow and cross sell.
Customers in the bottom left need to be cleaned up or cleared out.
Customers in the bottom right need improvement.

Client Case Study — IT Services Provider

We recently performed this analysis for a client of ours. We took all of their customers that had at least some current revenue activity. We looked at various categories (Products Purchased, Total Revenue, Lifetime value of the customer) and classified each customer into Green, Yellow, or Red based on certain financial thresholds. As our client discovered:

“This analysis had a positive impact on our whole team.”

It gave their Sales team clear targets to focus on. It showed the Customer Service team which customers should be given the highest priority. It also gave a “why” to their Customer Service team for the direction they received on how to treat Green, Yellow, or Red customers. This system also gave opportunities to upsell existing customers to higher tiers.

As the client noted, “If we lost a Red client, we would still be fine. We are focused on Greens and then do what we can to focus on Yellows and turn them into Greens.” The results of this analysis was simple enough for the whole team to follow quickly and the action items were implemented by front-line employees with little training.

Need Help?

This customer analysis is highly valuable and should be performed at least annually. It should also assist you in driving profitability in your business. CoEfficient Services and our partners can help. Give us a call 877-292-9684 ext. 801 or email jehlers at coefficientservices.com

]]>https://coefficientservices.com/resources/data-driven-management/customer-analysis/feed/0Integrate Data and Analytics into Every Part of Your Organizationhttps://coefficientservices.com/resources/data-driven-management/integrate-data-analytics-every-part-organization/
https://coefficientservices.com/resources/data-driven-management/integrate-data-analytics-every-part-organization/#respondWed, 05 Jul 2017 20:37:25 +0000https://coefficientservices.com/?p=2015As a small business, data and analytics can have a major impact in your success. Check out this article to learn more: https://hbr.org/2017/06/how-to-integrate-data-and-analytics-into-every-part-of-your-organization
Don’t have the right tools and people in place? Let us help.

]]>https://coefficientservices.com/resources/data-driven-management/integrate-data-analytics-every-part-organization/feed/0Turn away from the dark side: 80% of all data is considered darkhttps://coefficientservices.com/resources/data-driven-management/turn-away-dark-side-80-data-considered-dark/
https://coefficientservices.com/resources/data-driven-management/turn-away-dark-side-80-data-considered-dark/#respondWed, 30 Nov 2016 23:25:35 +0000https://coefficientservices.com/?p=1970“It takes great strength to resist the dark side. Only the weak embrace it." — Obi-Wan Kenobi
At CoEfficient, we not only love great Star Wars analogies, we also love data of all types, not just accounting data. Accounting data +

]]>“It takes great strength to resist the dark side. Only the weak embrace it." — Obi-Wan Kenobi
At CoEfficient, we not only love great Star Wars analogies, we also love data of all types, not just accounting data. Accounting data + contextual data always leads to better decisions. We found this presentation by Stanford professor Chris Ré about dark data fascinating: https://youtu.be/_fBMmQo-Z4E

The presentation focuses on scientific data and the problem that 80% of all data is considered “dark". It’s unstructured and largely inaccessible. Finding ways to bring this data into a usable format or to artificially read / process this data could greatly accelerate innovation.

So what does this have to do with accounting and data-driven decision making? How much of the data generated by your company every day is “dark”? Is the data generated by the activities of your company collected, curated, and reported in a way that leads to timely and informed decisions?

Here are a few ways we think most companies have unnecessarily dark data:

No connection between data sources / data in silos: Many companies have adopted multiple software tools to address different problems in different parts of the organization. Many times that data is evident to that part of the organization, but not available in relation to other operating data nor to the entire team. Bringing siloed data into the context of financial results or other operational data can lead to deeper insights and better decisions.

Inconsistent application of data standards: This is a massive problem we see with CRM systems. Different sales people using different fields to record similar activities or using different definitions for certain sales stages. The result is data that can be misleading or just worthless. We realize getting sales people to act in a uniform way is akin to herding cats, but with some outside data management support and clear definitions, good habits can be reinforced.

N = 1 (limited summarization): This seems like a simple one, but often data from activities like quality management data sets doesn’t have smart grouping, so everything looks like an anomaly and its hard to prioritize actions. In the example of quality control data, if every cause has an N-size of 1, how do you prioritize your improvement efforts? Smart summary data will help you make sense of bigger operational data sets. Establishing the right buckets is an important step and getting it wrong can also lead to poor decisions – so be careful when creating summary buckets.

Limited trending: The human brain loves to see patterns. Patterns can lead to insight. Given this, why do we often settle for snapshot data without the context of trending data from past results? This is a really simple step, but if you take the right metrics and look at trends over time, patterns or problems will stand out. Optimal decisions will be clearer.

While Professor Ré’s presentation was about scientific data, we believe most companies suffer from similar problems, and the 80% ratio is a pretty good guess for the amount of dark data lurking. This is where CoEfficient steps in. By leveraging solid accounting, smart analysis, data management, and CoEfficient View as a reporting tool, we can help you see your data in a new light.

]]>https://coefficientservices.com/resources/data-driven-management/turn-away-dark-side-80-data-considered-dark/feed/0What You Need to Know About Hiring Employees for Your Small Businesshttps://coefficientservices.com/industry-focus/startups/need-know-hiring-employees-small/
https://coefficientservices.com/industry-focus/startups/need-know-hiring-employees-small/#respondWed, 13 Jul 2016 17:30:59 +0000https://coefficientservices.com/?p=1814The long-term goal of every small-business owner is growth. When a company grows, more employees need to be hired to keep up with the increase of work. But the process of hiring is more complex than just finding qualified candidates.

]]>The long-term goal of every small-business owner is growth. When a company grows, more employees need to be hired to keep up with the increase of work. But the process of hiring is more complex than just finding qualified candidates. There are specific actions you have to take to when adding employees to your company, whether bringing people on at the beginning or going through a sudden expansion.

The first thing you need to think about is what type of employees you plan on hiring. Can you just bring on contract workers or do you need people to work full time?

Employer responsibilities vary depending on how the role is defined. Correct classification of employees is critical, as legal penalties can be assessed if a worker is found to be in the wrong category.

• Contract: Employees who are classified as contractors will invoice you for work completed and don’t have to be offered benefits. That’s because a contractor technically works for himself and runs his own business. The benefits to hiring contractors include reduced labor costs, flexibility in firing and hiring, and fewer tax responsibilities.

• Full-Time: Regular full-time employees work at least 30 hours a week, or 130 a month, and are eligible to receive all benefit plans offered by the company. A hire is considered an employee when you have control over what is done by the person and how. There are greater expenses to the business with a full-time position, as well as liability, but there is also greater control and consistency.

• Part-Time: Employees categorized as part-time generally work a minimum of 20 hours per week, but can technically work anywhere from 1 to 34 hours a week. Part-time workers are eligible for benefits, but the employer has more flexibility in what they choose to offer.

If you determine you are going to hire full-time or part-time employees, follow the hiring process below.

Applying for an Employer Identification Number (EIN)

When you decide to hire employees on staff, you need to first set up an Employer Identification Number. This number is your tax ID and is required when filling out tax returns and other IRS documents. To apply for an EIN, you have to file an SS-4 form with the IRS. Once you have your EIN, you will also use it to report employee information to state agencies.

Setting Up Records for Withholding Taxes

Employers are required to withhold a percentage of an employee’s earnings for federal and sometimes state taxes. These withholdings are required by the government and act as payments for IRS, Social Security and Medicare taxes. Before bringing any new hires on, you need to set up a system that manages payroll correctly and keeps track of withholdings. Employers have to keep records of employment taxes a minimum of four years, per the IRS. While it is a requirement, it’s also a smart business management practice, as it makes it easier to compile financial statements, verify information reported on tax returns, manage deductible expenses and prepare tax forms.

Registering for Employee Eligibility Verification

The U.S. Citizenship and Immigration Services require all individuals to legally prove eligibility for employment in the United States. This means every employee must be a U.S. citizen or approved to work in this country. As an employer, you must verify eligibility of each employee within three days of hire by completing a Form I-9 and keeping it on file for at least three years, or one year after termination. Officials with Immigration and Customs Enforcement may perform inspections of this information, and if eligibility requirements are not met, your business could be in trouble.

Documenting Employees to Your State’s New Hire Reporting System

Within 20 days of hire, employers must register each new employee with the New Hire Reporting System in their state. The New Hire Reporting System is a directory of all workers in the state and is used as a way to locate parents who owe child support. To find out how your state handles its reporting, check with the Small Business Administration.

Abiding by Labor Laws

Employers have certain laws they have to follow when it comes to employee rights. All employers must purchase Worker’s Compensation Insurance to protect their employees in case of an accident on the job. Some states also require businesses to pay unemployment insurance taxes and provide disability insurance. Additionally, once you reach 50 employees or more, the Affordable Care Act requires you to offer health insurance to at least 95 percent of full-timers. Taking time to figure out how and what to provide before hiring employees can save you hassle later when your payroll is much larger.

In addition to following the labor laws of the government, employers must post notices of employee legal rights around the workplace. The federal Department of Labor, as well as the state’s Department of Labor, requires certain posters to be visible to employees on the job.

Making Quarterly Tax Filings

Once you have built a staff, you will be required to report payroll taxes quarterly. The withholdings taken out of each employee paycheck for income tax, Medicare and Social Security have to be filed as a Quarterly Federal Tax Return to the IRS within a specific timeframe. To do this, employers need to fill out a Form 941 within one month of the end of each quarter (the end of April, July, October and January), even if there are no new taxes to report.

If you submitted timely deposits of full payment throughout the quarter, the IRS will give you until the 10th day of the next month (i.e., May 10, Aug. 10, Nov. 10 and Jan. 10).

Complying with the Occupational Safety and Health Act (OSHA)

OSHA was established to set guidelines every employer must follow to ensure a safe work environment for employees. The requirements of this law include creating a hazard-free workplace, notifying the government when accidents happen on the job, providing proper training to employees on how to perform their jobs safely, keeping equipment well

maintained, and filing thorough safety records. Skimping on any of the rules set forth by this act is not a good idea, as the government performs random inspections and violations can result in citations and fines.

To keep your business running smoothly and stay on top of growth, make sure you bring on new employees in the proper way. In addition to these steps, as you continue to grow, hiring a payroll company, HR firm or accounting service are great ways to manage all of the requirements and compliance issues that come with running a business. If you are considering hiring a firm to handle all or any of these issues, check out CoEfficient’s extensive list of services, and contact us anytime.

]]>https://coefficientservices.com/industry-focus/startups/need-know-hiring-employees-small/feed/0Proper Accounting And Clear Reportinghttps://coefficientservices.com/resources/data-driven-management/dont-botch-your-bookkeeping-the-importance-of-proper-accounting-and-clear-reporting-for-your-small-business/
https://coefficientservices.com/resources/data-driven-management/dont-botch-your-bookkeeping-the-importance-of-proper-accounting-and-clear-reporting-for-your-small-business/#respondFri, 28 Aug 2015 17:36:23 +0000https://coefficientservices.com/?p=1188The principles of accounting have existed since the days of Mesopotamia. In fact, according to historian John Steele Gordan, humans likely began to write simply because they wanted to track their money. Those early primitive methods worked for several thousand

]]>The principles of accounting have existed since the days of Mesopotamia. In fact, according to historian John Steele Gordan, humans likely began to write simply because they wanted to track their money. Those early primitive methods worked for several thousand years, but it wasn’t until the 15th century, when an Italian monk invented double-entry bookkeeping, that it became possible to more quickly discover errors and to take gobs of raw numbers and paint a full financial picture of one’s assets.

Accounting opened up a whole new world for investors

Double-entry bookkeeping made it possible for people to begin investing in businesses far and wide because they could actually track how their investments were performing. In fact, King Ferdinand and Queen Isabella had such devout belief in the value of accounting, that they sent an accountant along with Christopher Columbus on his first voyage. While other members of that voyage probably lobbied to add an extra sailor or deck hand instead of an accountant, the King and Queen wanted to be sure they got paid, and an accountant could make that happen.

Solid accounting and reporting is more important than ever

Fast forward to 2015, and accounting is critical, especially for small business owners who need to stretch every penny. Proper accounting and clear reporting allows you to make sense of your data in a systematic way so that you can make smart decisions—decisions that will decrease losses and prevent fraud, while increasing your overall revenues.

Bottom line: With poor accounting practices and sloppy bookkeeping, you can’t evaluate the health of your business. And if you can’t do that, you can’t ensure the success of your business.

A service that can take your business to the next level

Like many small business owners and entrepreneurs, a lack of time may make you less than diligent when it comes to tracking your finances. Additionally, hiring a full-time in-house accountant or working with a CPA firm might not be within your budget. Still, you can’t afford to botch your bookkeeping. You simply cannot dismiss the importance of proper accounting and clear reporting for the value of data visibility and accountability it brings to your business.

Connect with CoEfficient Services today. An industry leader in providing accounting and finance outsourcing to small businesses, CoEfficient can help you get your financials in order, at a price you can afford. Contact us today so that you can start focusing on growth, rather than managing those pesky accounting problems.

]]>https://coefficientservices.com/resources/data-driven-management/dont-botch-your-bookkeeping-the-importance-of-proper-accounting-and-clear-reporting-for-your-small-business/feed/01099 Troublehttps://coefficientservices.com/resources/tips-for-smbs/steer-clear-1099-trouble/
https://coefficientservices.com/resources/tips-for-smbs/steer-clear-1099-trouble/#respondWed, 22 Oct 2014 16:40:22 +0000https://coefficientservices.com/?p=750The IRS continues to increase its scrutiny of Form 1099 reporting by individuals and businesses. The IRS uses 1099s submitted to them to be sure Form 1099 recipients report the income on their income tax returns. Failure to comply with

]]>The IRS continues to increase its scrutiny of Form 1099 reporting by individuals and businesses. The IRS uses 1099s submitted to them to be sure Form 1099 recipients report the income on their income tax returns. Failure to comply with 1099 filing requirements may result in substantial penalties. Because of the Small Business Jobs Act of 2010 certain 1099-related penalties are more than double what they were in previous years.

The penalties increase the longer the 1099 filing failure continues or the longer it takes to correct 1099s filed incorrectly. Penalties range from $30 to $100 per form, with a maximum penalty of $1.5 million. However, if the rules are intentionally disregarded, penalties increase to $250 per 1099 with no maximum penalty.

With the increased IRS focus on taxpayers" information reporting obligations along with increased IRS staffing focused on collection of these tax, it is important to know when a Form 1099 filing is required and to file form accurately and on time.

Who must file Form 1099-MISC?

All entities engaged in a trade or business (sole proprietorships, partnerships and corporations)

Landlords engaging in the business of renting property

Nonprofit organizations, federal, state or local governmental agencies

Trusts of qualified pension or profit-sharing plans of employers

And, a person engaging in a trade or business is defined as a person who is involved in the activity continuously and regularly and whose main motive in engaging in the activity is for income or profit.

When is Form 1099-MISC Required?

All businesses will need to fill out a Form 1099-MISC for each person, vendor, subcontractor, independent contractor, and others in the following circumstances:
$600 or more per year is paid for rents, services (including parts and materials), prizes and awards, medical and health care payments, crop insurance proceeds, cash payments to fishermen, proceeds paid to attorneys, and other types of payments not covered by another information reporting document. Reporting such payments is required if the recipient of the payment is not a corporation – for example, when the recipient is an individual, estate, partnership, a limited liability company treated as a partnership or sole proprietorship. Payments made to corporations may be reported using Form 1099-MISC, but is not required.

Exceptions:

Payments to corporations for legal services. The exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore, you must report attorneys" fees (in box 7) or gross proceeds (in box 14) as described earlier to corporations that provide legal services.

Medical and health care payments are reported on Form 1099-MISC even if made to corporations.

Payments of rent to real estate agents do not have to be reported. But the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner.

Steps to Take to Prepare for 1099-MISC Forms

It is important that businesses request that all of your vendors, contractors and other payment recipients submit to you a Form W-9 will provide you with the legal name, address and taxpayer identification number for the vendor, which is the information you will need when preparing any 1099-MISC forms.

Backup Withholding Requirement Policy

Backup withholding is required on payments if TIN is not furnished by the payee. If you are required to withhold but fail to do so, you may be liable for the amount you should have withheld, unless the payee included the payments on a tax return.

1099-MISC Requirements for Landlords

Landlords engaging in the business of renting property are still required to issue 1099s for vendors paid $600 or more. A person engaging in a trade or business is defined as a person who is involved in the activity continuously and regularly and whose main motive in engaging in the activity is for income or profit.
Thus these filing requirements will not apply to the owner of property who turns over management duties to an outside source, as he is not regularly and continuously involved in the activity.

When is Form 1099-MISC Due?

All recipients must receive this Form by January 31, 2015. Copies of the Form must be sent to the IRS by February 28, 2015 and Forms can be e-filed to the IRS by March 31, 2015.

]]>https://coefficientservices.com/resources/tips-for-smbs/steer-clear-1099-trouble/feed/0Bookkeeping Accounting Gaphttps://coefficientservices.com/resources/tips-for-smbs/bridging-bookkeeping-accounting-gap/
https://coefficientservices.com/resources/tips-for-smbs/bridging-bookkeeping-accounting-gap/#respondFri, 23 May 2014 13:01:51 +0000https://coefficientservices.com/?p=715All entrepreneurs understand that there is a major “chasm to cross” between a startup and a growing, fully-functional company. There are plenty of charts and graphs showing 5 or 7 stages of company growth. Regardless of your framework, we all

]]>All entrepreneurs understand that there is a major “chasm to cross” between a startup and a growing, fully-functional company. There are plenty of charts and graphs showing 5 or 7 stages of company growth. Regardless of your framework, we all know its hard work.
One of the biggest challenges as you start to gain traction is knowing when to build for the future vs staying lean and nimble. One talented entrepreneur we’ve worked with over the years put it this way:

“You need to decide if you are managing the business you have today or managing the business you hope to have in the future.”

Depending on your outlook and cash reserve, each entrepreneur may make a different decision.

So, what does this have to do with accounting? There’s also a large gap to cross in accounting (along with most functions) while you are growing your business. In the chart below, we detail what we"ve called the Accounting Gap. It’s really the gap that exists in traditional offerings between “bookkeeping” and “high-performance accounting teams”.

It’s clear that we’d all like to have high-performance accounting as part of our organization, but is it worth the cost? Is there a way to bridge between traditional bookkeeping offerings and your own team?

When is high-performance accounting worth the cost?

If you are a couple of founders still working on product/market fit with some ongoing expenses, you shouldn’t increase your burn rate to take care of accounting. Basic documentation and bookkeeping is all you need. We’d actually recommend leveraging some of the great SaaS tools that exist like Quickbooks Online, Bill.com and Expensify.

However, once your cost structure starts to grow more complicated, or you have 3rd party money you need to report on, or you start to have revenue and COGS to account for, you should consider a higher-performance solution. You need a solution that offers clear, actionable reporting, robust documentation and internal fraud protection. You want to invest in enough accounting so your company can stand up to a diligence process of future investors (or better yet, the IPO process).

Be diligence ready, all the time. It’s harder than you think to “catch up” when you decide you want to raise money.

What are the options?

Like most back-office functions, you don’t have to build your own team to get the benefits of high-performance accounting. When you have enough scale, building your own team can add value to your organization.
A natural first step for some entrepreneurs is to push off accounting to a bookkeeper or an office admin. This can work as a stop gap solution, as long as cost-structure data and clear reporting aren’t critical to your business success. And frankly, some business models are simple enough that this is a great solution. As a rule of thumb, if you just need accounting to keep you compliant and file taxes, but you don’t get much management value out of the data, then a part-time bookkeeper may be the most cost effective option.
Beyond the bookkeeper, there are some options that have recently emerged. There is a growing group of innovative accounting services firms that are filling this bookkeeping / accounting gap, like CoEfficient Services. We’ve taken a service level that was historically only available to companies with corporate accounting teams and productized it for smaller companies. We start with the reporting small companies need to make decisions, then build processes to efficiently service our clients in an accurate and safe manner.

We’ve built our service around three needs of a business owner:

Clear, actionable financial reporting

Efficient, web-based documentation to always be “diligence ready”

Robust fraud protection

High-performance accounting isn"t for all companies, but if you need it, we can help.

]]>https://coefficientservices.com/resources/tips-for-smbs/bridging-bookkeeping-accounting-gap/feed/0San Diego County Medical Society Mixerhttps://coefficientservices.com/industry-focus/medical-practices/san-diego-county-medical-society-mixer/
https://coefficientservices.com/industry-focus/medical-practices/san-diego-county-medical-society-mixer/#respondFri, 04 Apr 2014 14:50:01 +0000https://coefficientservices.com/?p=677We had a great night hanging out with some local doctors at the San Diego County Medical Society"s Physician Mixer last night. Great event and a change to get to know some great doctors!

]]>https://coefficientservices.com/industry-focus/medical-practices/san-diego-county-medical-society-mixer/feed/0Proper Cash Managementhttps://coefficientservices.com/resources/data-driven-management/days-zero-proper-cash-management-brings-peace-mind/
https://coefficientservices.com/resources/data-driven-management/days-zero-proper-cash-management-brings-peace-mind/#respondMon, 10 Feb 2014 18:19:40 +0000https://coefficientservices.com/?p=583Cash management, cash forecasting, and burn rate calculations are frequent concerns for entrepreneurs. One metric we love at CoEfficient is Days-to-Zero. Put simply, if your cash receipts stopped tomorrow, how many days until your business ran out of cash? While

]]>Cash management, cash forecasting, and burn rate calculations are frequent concerns for entrepreneurs. One metric we love at CoEfficient is Days-to-Zero. Put simply, if your cash receipts stopped tomorrow, how many days until your business ran out of cash? While we all hope this is worst case scenario and as such, this metric may sound a little simplistic, a few variations on this metric can help you make the right decisions when it comes to cash balance.

Calculating Days-to-Zero

Our first step is to answer the question: how should you calculate Days-to-Zero? The simplest calculation is cash balance / (monthly expenses / 30). However, there are quite a few options that should be considered, depending on what you are trying to accomplish. The options fall into two categories: 1) What do you use for your cash #? And 2) Which expenses do you include?

Establishing the right numerator (cash) is pretty straight forward, but depends on your purpose. If this is “company health” metric, then use cash only (it’s a cleaner metric). If you are a startup or in a turn-around situation and your focus is to really know how long your runway is, then you may want to include a portion of AR. Excluding 100% of AR may give you an overly aggressive view as even if revenue stopped some cash receipts would still continue. That said, including 100% isn’t the right answer either – the right solution takes some though and we’ll cover that in a future post.

Establishing the right denominator (average monthly expense rate) requires a little more analysis and insight into what you want from the report and how you plan to manage your business with this data. The simplest metric just includes 100% of cash-based expenses (excluding Depreciation / Amortization expenses). This is sufficient if you are using this metric as a “company health” metric only, but it doesn’t model reality.

To model reality, we need to dig into the cost structure a bit more and divide your expenses into 4 categories:

COGS – Variable (“If you stop making product, these costs stop by themselves.”)

COGS – Fixed (Overhead like rent or other long-term leases that you can’t get out of just because you stop shipping)

OPEX – Below the line expenses

Based on these four expense types, you can get a more refined Days-to-Zero calculation. As with a many things in life, the middle is probably the best place to be. Here are the different calculations of Days-to-Zero that we find useful with a calculation example from a client:

Using a Days-to-Zero metric in management decisions

Now that you’ve calculated a Days-to-Zero (and preferably incorporated it into your regular weekly or monthly reporting package), how should you use it? What decisions does this metric actually help with?

This will largely depend on what type of company you are. We find it’s a useful metric for 3 different types of companies:

You are a pre-revenue or early-revenue start up and trying to manage cash burn

You are cash-flow positive, and trying to set the right level of a cash balance to keep on hand

Your company is losing money and you need to set the level at which you take increasingly drastic cost-cutting measures

The use (and proper calculation) will depend on which type of company you are managing. We’ll cover more detailed use cases and some examples in our next post on the topic.

]]>https://coefficientservices.com/resources/data-driven-management/days-zero-proper-cash-management-brings-peace-mind/feed/0Improve Accounting Practiceshttps://coefficientservices.com/blog/25-billion-reasons-improve-accounting-practices-medical-offices/
https://coefficientservices.com/blog/25-billion-reasons-improve-accounting-practices-medical-offices/#respondTue, 28 Jan 2014 20:55:07 +0000https://coefficientservices.com/?p=571$25 Billion was lost from medical practices last year due to fraud or theft. $25 billion*.

That’s a pretty high number, right. Certainly to account for $25B, a lot of that had to come from large practices, right? Wrong. 70% of

]]>$25 Billion was lost from medical practices last year due to fraud or theft. $25 billion*.

That’s a pretty high number, right. Certainly to account for $25B, a lot of that had to come from large practices, right? Wrong. 70% of all fraud comes from practices with fewer than 10 physicians*.

Why so high with small practices? The fraud triangle is a standard framework used to help identify high-risk fraud situations (the three factors that lead to most fraud). Let’s see how this applies to a small medical practice:

Opportunity: Could an employee execute a fraud scheme with limited change for getting caught? In a small medical practice with one practice manager handling the books with no oversight, the opportunity is definitely there.

Rationalization: Can an employee justify a dishonest action? How do otherwise honest people end up stealing from their employers? Well, with a medical practice, you often have staff in charge of the practices finances who make 1/10th or less than the physicians make, and because they maintain the books, they see every penny the physicians make. Does it make fraud right, no. Does it help explain how someone could take some extra cash here and there, yes.

Pressure: Is there financial or emotional pressure on an employee that may push them towards fraud? This is the one that isn’t that obvious, but it can also change. An employee may have been loyal for years, in spite of the opportunity to commit fraud, but what if they run into a tough patch? Now they have the pressure that may cause them to act.

So, now that you’re all a little depressed, or at least apprehensive, let’s take a look at the most common types of fraud schemes:

Expense reimbursements – inflated or fictitious expense reports (remember, internet receipts are extremely easy to edit. We found an employee ordering stereo equipment from Amazon, but just editing the receipts to look like office supplies in MS Word)

Medical Office: one member of the front desk staff had access to QuickBooks. They received cash payments. Later they would pocket the cash and delete the receivable in QB. Each one was small and no one noticed discrepancies between services rendered and total billings. Eventually they took thousands over the course of a year.

Optometry Clinic: Without proper inventory management, an employee realized they could adjust the received amount and no one noticed. They started to siphon off a few high-end frames at a time and sold them to friends and family. The fraud was easy to spot once the inventory accounts were reviewed by an accounting professional.

Is there hope? Yes. Here are a few simple steps you can take towards safeguarding your practice:

Separate key duties across different people: one simple example, employees who handle money and deposits should not be responsible for accounts payable or receivables.

Develop some key reports that are reviewed on a regular basis. Understand which anomalies may be cause for concern and further investigation.

Keep an eye on check runs and accounts receivable. On the checks, look for checks to vendors who aren’t familiar. On receivables, watch for refunds or late payments that don’t make sense.

Set up some basic safeguards and processes and never deviate. Even if there are times when the right process is inconvenient, just stick too it every time.

Don’t assume your accounting software will protect you! Software is a helpful tool, but it can be manipulated and changed. 3rd party oversight good accounting software is the best protection.

If you would like to discuss your accounting or get some ideas on how to implement safeguards, please reach out to CoEfficient anytime.